Regulatory: Conflict management for inside counsel

The task of steering clear of conflicts with current and former clients grows more complicated as the list of current and former clients grows longer. Long client lists have forced law firms to focus on conflicts management for years. But the client lists of many corporate legal departments are growing too. This growth is the result of growing legal departments—the addition of new lawyers leads to the addition of imported former clients that must be checked for conflicts purposes; growing corporate families; and the risk that courts will find implied attorney-client relationships between corporate counsel and corporate constituents. As its list of current and former clients grows, the corporate legal department will need to develop robust conflicts management systems and procedures as well.

Failure to properly address conflicts can lead to unhappy outcomes including bar discipline, disqualification, claims for malpractice and breach of fiduciary duty, loss of privilege and confidentiality, fee disgorgement, and generally unhappy clients. While outside counsel are at greater risk for some of these outcomes, in-house counsel are not immune from any of them.

Adverse representation conflicts

Ethical conflicts can arise in a variety of circumstances. The most common conflicts lawyers confront are adverse representation conflicts. That is, the legal department may have a conflict that must be evaluated before it can take on a matter for the corporate employer that is adverse to a current or former client. The conflicts rules for matters adverse to current and former clients are different (see, e.g., ABA Model Rules 1.7 & 1.9), but to effectively manage the potential conflicts, both current and former clients need to be on the list. Adding to the complexity, the conflicts rules vary from jurisdiction to jurisdiction, with relatively smaller differences among jurisdictions within the United States, and larger differences across international borders.

Identifying current and former clients

The principal client of any corporate legal department is of course the corporation itself. If an entire legal department were made up entirely of lawyers who had ever represented only the corporation, we wouldn’t have to worry about adverse representation conflicts. But that isn’t the practical reality.

While legal departments sometimes hire lawyers right of out of law school, more often they hire lawyers from law firms, government agencies, other corporate legal departments, or solo practices. The former clients of the hired lawyers should be on the list, and for conflicts checking purposes, you need to know at least some general information about the matters on which the lawyers in the legal department represented those former clients, while taking care to protect the confidential information of the former clients.

Review the company’s website, intranet, policies and communications that might reflect whom the company has said its lawyers represent. You might be surprised what you find. You may find statements that the company’s lawyers represent a broad group of corporate constituents, when, on reflection, that isn’t intended or accurate.

Review regulatory, administrative and court filings to see whether the company or its lawyers have claimed to have represented any clients other than the corporation itself.

“Implied” clients

Perhaps the knottiest problem is identifying people or entities who might claim to have an attorney-client relationship that arose by implication. Attorney-client relationships generally form as a matter of contract. Restatement (Third) of the Law Governing Lawyers §14 (2012). The prospect of a court finding an implied contract are what keep people who worry about conflicts up at night. The law has developed in a way that has made it more difficult for corporate officers to establish implied attorney-client relationships with corporate counsel. See, e.g., United States v. Graf. However, determining whether an attorney-client relationship arose by implication where there is no written expression of the intent of at least the lawyer or the corporation can involve a highly factual and complex analysis. See, e.g., Gerffert Co., Inc. v. Dean; Teleglobe USA Inc. v. BCE Inc. (In re Teleglobe Communications Corp).

Practical tips

There is no single perfect conflicts-checking system for all corporate legal departments. But all legal departments should give thought to these practical suggestions:

Maintain a comprehensive database of all current and former clients of the corporate legal department and its lawyers

Identify who the legal department intends to be its clients and potential clients, and ensure that the company’s written policies and internal and external communications are consistent

Expressly in writing limit the scope of representations of clients other than the principal corporate client

Obtain written waivers as appropriate to avoid having a conflict prevent the legal department from representing the principal corporate client

Perform conflicts checks when the legal department takes on new clients and when new adverse parties appear in matters handled by the legal department